Blog / How does your bankruptcy affect the filing of your tax returns?

This is the time of year when W2 forms start landing in mail boxes. And suddenly, that which has always been a rather mundane act of trotting down to Office Depot for the latest Turbo Tax becomes fraught with doubt. How does a bankruptcy case affect a tax filing?
The answer, fortunately, is that bankruptcy only occasionaly changes your income tax filings.
Outside of bankruptcy, if a creditor forgives your debt, they report this debt-forgiveness to the IRS and issue you a 1099(c). In other words, forgiven debt is treated as taxable income. There are two exceptions for being taxed on forgiven debt: (1) when the debtor is insolvent, and (2) when the debt was forgiven because of a bankruptcy case. Most creditors know this and so won't file a 1099(c) on your behalf.
The good news is that if you receive a 1099(c) from a creditor seeking to inspire the IRS to tax you on that forgiven debt, all you have to do is file a Form 982 with your taxes, alerting the IRS to the fact that the debt was discharged under Title 11.

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